Transcripts For CSPAN3 Key Capitol Hill Hearings 20240622

Issues we have to separate as we address the questions you offered. Is there a liquidity crisis . The first is are we in the midst of a transition from one type of market to over. If over night, we say that ever bond dealer who works in a bank can no longer deal bonds, the next day it will be a little harder to buy bounds. No question about it, and sell them as well. But what will happen afterwards, the banks will sell their operations to hedge funds to other companies, to the employees themselves and theyll get reorganized to find the capital and make money, because there are opportunities to make money when people demand liquidity, by the way, theres no such thing anywhere of free liquidity. Liquidity always has some price, sometimes its low and wed like it to be low, its always, always priced. The first issue, is there a question of transition . And if theres a question of transition, how do we get through the transition quickly . Maybe we dont want to have banks dealing bonds. The second question is the Systemic Risk thats in front of us. I think its worthwhile if we spend a few moments talking about the scenario that people are afraid of. Scenario is this. The public has now purchased a massive amount of fixed income. At fairly low rates, and the prices are fairly high, theyll be happy if they stay there, that was their expectation. But if it looks like rates will rise and, therefore, bonds will drop, or there might be inflation in the future. Then we all know that these Corporate Bonds are going to drop in value, those people who know better than others and earlier than others are going to race for the exit. Because they want to get out quickly. The question is, will they be able to get out. And how many will they be able to get out. And more importantly, the question, they will push prices down as they should, because those conditions suggest that bond prices should be lower. Will they push them down beyond where they should be . Will they overreact . Of course, if they over react, there will be plenty of opportunity for those people to step in, but they may not step in quick enough. And these are our fears that we face, as we address those fears, lets also recognize that when the bond prices drop, their yields rise. Everybody who was interested in fixed income, because theyre concerned about their retirements, looks at it and says, i wasnt so interested in buying it when my perception of bonds, they were return free risk, just the opposite of what were looking for, right. These high prices are called return free risk. Now all of a sudden, bonds are actually giving me a return that is respectful, maybe i will step in at this point. The question is, how quickly will they go in. Is there a potential for volatility . Absolutely. Wherever there are large correlated behaviors, that are significant fractions of the economy, theres potential for Systemic Risk. And there will be changes in the future, the question is, can we create systems that are robust enough that when they happen, people respond quickly that we dont get an over reaction that we hurt us all. Its my opinion, and i think others have expressed this, the cumulative effects of the series of regulations that have made it essentially more difficult and expensive for certain dealers to act as market makers. These rules, including others, supplemental leverage ratio under the rules. Changes to the cap a tall rules around basal. Since the crisis, to what extent have banks imposed stricter internal limits on their business units. Not from a regulatory standpoint, but in reaction to a regular tear environment and the market changes. Have banks changed their risk profiles . Lets start with some of the changes banks have imposed on themselves. Clearly, as everyone here did, so did our franchise live through the 2008 financial crisis. And the pricing activity and the changing liquidity dynamics actually informed our perspectives and views on price activity. As a result, our Risk Appetite for certain types of trading activities and certain types of risks changed. For example, even if you peeled back all regulation, chances are, there would be less liquidity being provided into the marketplace, because learning has occurred in some aspects. Thats important. That said, regulation and much of it, i would say, the largest portion of it coming out of basal on behalf of the g20, which focuses on liquidity charges, capital charges and things of that nature, firstly, its absolutely important that minimum standards were created to create a level of resiliency and reliability into the marketplace, so thats really a good thing. But as you mentioned chairman, one, more work probably needs to be done on what is the cumulative impact of all of those regulations added up. I would also posit, that in many cases each rule is almost written so it wouldnt comply with the rule before it. So, for example, when we think about lcr, which is an extreme stress test that assumes a run on liquidity for your banking institution. It assures youre holding the right amount of liquid assets and cash to meet those outflows right . For example, precrisis, if you were engaged in short term wholesale financing, that might have been an open position. If you are compliant with lcr, you are not using short term wholesale funding for your inventory management. Its not creating a Liquidity Risk if you will. That said, the fact that youve raised that cash, youre carrying in liquidity and to give you some perspective, jpmorgan is holding about 600 billion at the end of the first quarter, last reported results. Thats an enormous amount. Balance sheets are the largest Banking Institutions are about holding 25 in liquid assets. In addition to holding that in liquid assets, the supplementary leverage ratio which was created in basal, and implemented here in the u. S. , because its trying to create a consistency around concerns related to risk weighted assets, its risk agnostic in charge of the 6 capital charge on all assets, including cash, including treasury and it weighs extremely heavy. When you get to u. S. Gsib, for example, it assumes you may not be compliant with lcr, so once again, taxes, any activity you might be doing to accommodate client flow in the retail market. Right . So as a result if we step back, market liquidity in the u. S. Treasury market. We clearly are holding more treasury securities as high quality liquid assets. We are not putting those into the marketplace, because we need to hold them unincumbered on the Balance Sheet. We also are not putting out vast amounts that were holding in excess, why . If we put them out, because were already compliant with lcr, we would actually be adding to our cash, which would draw an incremental 6 capital charge. And if we transacted in that way under the proposal, it would be charged an incremental gsib surcharge. So i think its not just about cumulative impact. Its about how the rules Work Together. And if youre compliant with those that are addressing the Systemic Risks, there might be room to sharpen our pencils and allow more liquidity to flow back into the system, because i think theres more that could be in fact accommodated in that context. Thank you. In view of the changes in the profile of people that have in the past made markets in those securities, those who have changed, as an issuer and a major player in the marketplace, have you seen the risk profile that some of those players are willing to take . In other words, maybe people have taken more of your issuance in the past, maybe having a diminished appetite in some ways. Well, i think the answer to that is after what happened in 2007, 2008 and you would probably know this better than me, i think every asset manager did look at the credit allocations they would give to every single name and also a cross product. And really make an assessment of whether those were at appropriate levels or not. And certainly as first of all, what ge capital tends to issue is the security. It is typically bullet securities, carrying a fixed coupon or floating rate coupon. We do issue more in the retail market, securities that have calls in them. Those are in some sizes what theyre interested is earning that coupon rate, and theyre not really looking to trade or anything like that. But even having said that, i think that we do see more smaller ticket sizes when i look at the benchmark securities that we put out there. And those are dollar globals, which we do once a quarter in terms of, you know, thats the benchmark issuance for that period. The ticket sizes are smaller, i think its a function of single name exposure, i think its a function of a lot of the other considerations that every asset manager is dealing with on their side. Now, we have also adjusted in the sense that we are actively shrinking our Balance Sheet, so that where as before on an annual basis we were putting out internationally on a global internationally on a total of debt, we went down to 25 billion to 25 billion and have even a northeast need to, you know, a strategy which we announced on the 10th of april that were not going to be putting any debt in the market, longterm debt, that is, for five years as we bring down the size of the Balance Sheet. Now, thats an extreme reaction. I think every intention to adjust the size of whats able to put out the frequent issuers. I think whats an interesting phenomenon the issue is you dont tend to see as frequently this is a historical chance to put off 30year funding at absolutely levels that we havent seen now 1960s. As well as the m a driven issuance which of course has a very different impetus to it than the ones, people like ge capital who are in there on a regular basis. The ge experience is probably worth talking about just a bit because its a tremendous lesson weve learned from ge about liquidity. In the run up to the financial crisis. Ge, as you may recall financed a substantial number of its acquisition using paper for many years and they did this because the commercial paper was carried low interest rate, so the cost of funding was very low. They had associated with it that they had to refinance every year or so. Within that, ge had an enormous liquidity problem and would have failed if it hadnt been for the government stepping in. So now, its interesting to think about how we should think about this problem. Ge, perhaps knew that it was so large that they could get away. Perhaps they were just ignorant and they went and did this. But had they funded their operations longer term before, they would have paid perhaps more interest. Their ability to fund shortterm and get away with it gave them quite an advantage in the market visavis their competitors. And so if there is no penalty for this type of behavior, then well see a lot of people doing it leading to Systemic Risks. So i think it was right what we did in resolving these problems in the financial crisis. But as we now think about what types of instruments issuers not just ge but anybody else should be issuing, they have to do it in a way thats responsible so that they dont run into their own liquidity crisis which is associated with the refunding. The only way to keep them responsible, though, ultimately is for there to be a serious penalty when they make a mistake. Now the problem is, are we willing, as a society, to bear those penalties if it has an ultimate impact on employment. If we are willing to do that, then we dont regulate them. But if were too concerned about the employment issue, then we have to regulate them otherwise were going to end up holding the bill. We did have sufficient blinds to cover the ct program and, you know, one of the things which maybe not everybody is familiar with is that back then, in u. S. Dollars, euro and sterling we were our we placed our own paper. We actually did not use dealers and we continued not to use dealers in the dollar market. What was very interesting was that we were rolling the paper, but other people who were having redemptions on them actually couldnt sell asset backed commercial paper issued by frankly other vehicles and all of that. And they were actually coming to us asking to sell us back our commercial paper and we always did buy back. You know that was the standard policy so that they could create liquidity because, quite frankly, the Dealer Community wasnt able to accommodate the flood of requests. And that, i think ultimately created the difficulty for us because while we could handle our own program, we certainly werent in a pog to be providing liquidity for, you know, the greater system. That was just not something that we could do. You know were we maybe a little bit too much in cp or not we could debate that. That is certainly an open question. But i think at that particular time, there was a nuance to it and we did learn from that in the sense that we ultimately reduced the size of the cp program to about 25 billion and then were going to take it down to five by yearend. And the other issue is that ever since 08, weve been running a liability portfolio where the average life is around seven years on a blended basis versus an asset portfolio where the average life is, say, three to four years, so much longer liability. But it is at a cost right . And we also have a liquidity buffer and Everything Else like that. And the decision made in april to shrink down the size of the Balance Sheet and ultimately just focus on, you know, three core businesses rather than many of the others is based on an assessment of ultimately can you meet the hurdle rates that you would like . And the answer was probably no, other than he knows business. So where were pulling out is middle market lending where, you know, weve been there for many, many years. Its a, you know, business decision. Theres no valuable judgment of is it right or wrong, but it is a logical next step implication of many of the policies that came before. Larry summers recently said that, you know, we might not have been such a good idea to go out there and shrink all the Financial Institutions a little bit because when you shrink all of them a little bit then, you know, who is going to make up the difference . I guess my question to you is with the fact that weve seen in the banking space a reduction in the dealer space a reduction in capacity how does that impact, you know, your thoughts on liquidity, both on the buy and the sell side . Absolutely. So when we think about the cumulative impact both the regulation but also of the learnings from Market Participants that sandy alluded to earlier and the Business Model thats resulted from that we look at the the new status quo where there are less dealer inventories and less available liquidity, less market depth as the new environment in which we need to collectively adapt. For us at blackrock what thats meant is looking deeply at the Market Structure and fixed income. And one of our observations is that the infrastructure of the market overthecounter market based on firms taking Principal Risk and keeping securities and inventory and finding the other side at a later time feels what dated. Freshly in the context of the rapid growth of the fixed income market. We talked about the issuance over the past several years. So what weve then done is look at many other Securities Markets and ultimately we believe that better use of emerging technologies such as electronic trading, such as broadening the types of trading protocols that are used in fixed income allowing all market liquidity where buyers and sellers can create more points of potential transactions rather than the traditional client to broker dealer single attraction collectively, we believe that all of those depths can incrementally enhance liquidity. I would echo earlier what was said each of those are incremental. One of these single steps is very easy to be a little bit dismissive of it and say, that wont help that much. Market participants recognize that. There is a great amount of realtime development in the electronic trading space, both being undertaken by new emerging firms as well as the large income bunt Global Investment banks investing heavily in technologies and thinking of the next stage of evolution of their businesses. Chairman, can i jump in on that before we lose the train of thought . I think a critical point we need to debate or at least get out on the record is what i view as a recent push by some policymakers in washington certainly within some constituent members of the fsoc if not the fsoc itself is to attempt to vilify in this context electronic trading specifically as the cause of the lack of liquidity, which to me is turning the world on its head. I listened to dr. Harris and im intryinged by his notions when ive been following for while, maybe a thousand chutes will grow from the chaos of all these rules that have decreased liquidity. Maybe it will be a hedge fund or maybe it will be a broker dealer that trades fixed income. But employing new technology, new Business Models, electronic trading is happening in the aftermath of all of these other changes yet being pointed at, blamed for this lack of liquidity. And we cant let this narrative go unchallenged. Youve seen it in the fsoc annual report. There was a drive by of it in the multi Agency Report that came out last october. And ive been around this town long enough there always has to be a boogeyman somewhere when youre trying to misdirect. I think this is an area that we need to encourage and not run away from and not vilify, not accept the standard pushback that were getting. And the second point, too which is this notion of the aggregate impact of regulation. And your question, which i think is a good one, how much of it is standard post crisis and how much of it is regulation. I was listening closely to sandy. I think weve reached a point where weve seen historically 2008 to maybe into 11 where there was a lot of prudent Risk Management undertaken in response to a crisis. I dont think you can parse them out any longer. You cant say its basul, its dodd frank, you go down the road and then its prudent Risk Management because what risk is there to manage when youve been told to derisk everything . So there is this burning need, i think, and i know dr. Langston hash doing some work, i know the new york fed has been looking at this. But it goes back to your introductory remarks which i think you politely didnt call out jamie dimon for asking that question of ben bernanke and he was the one that did it. It inspired me to look at this exchange where he said no one is looking at the aggregate impact. Ive identified after committing my own staff resources, 300 or so regulations that apply to a hypothetical u. S. Financial Services Holding Company Since dodd frank. Not only related to dodd frank, some international measures too, but since. And if you look at this chart, it just reeks you know, impossibility. How do you do it . If youre not too big to fail how do you pay for the Compliance Costs . How do you provide liquidity in a situation where you have all of these rules and if youre lucky, the cost benefit has been analyzed rule by rule. Its something we policymakers have to look into. Can i quickly Say Something about the hft question. The hft has a really bad name and theyre not the boogeyman in the room if you will. In fact i think the report that was just released today will show that the hfts provided liquidity during the window when there was increased volatility. But i do think the report does say we need to look at the issue a lot more closely in terms of that trading strategy and whether it creates unintended consequences. I just want to put that out there. So i appreciate going back to, you know, not just regulations being a factor for changes in market liquidity. There really are a number of factors. They deal in Risk Management and coming back to electronic trading. I dont think and im not going to speak for fsoc. I can only speak for myself through the fed on electronic trading. Its not viewed as a not meant to be vilified i dont think so. I think it is an unknown. Its very new. And theres not as much information about it to Market Participants or to regulators about it as much as perhaps, and i think the inner agency study, staff study on october 15th was actually a nice step forward. On this issue. It doesnt try to identify a cause, a single i mean it certainly was looking for whether there is an error or something. It does not find an error. And so it took a step of, lets provide as much information to the public about what happened during that window. And theres an enormous amount of information in that report that i think people will now be able to look and evaluate and each individual participant may be a little part of that whole piece and by seeing it altogether they may learn something more about it. But i think it was quite careful to not vilify. But a couple of interesting things is it is a very big part of the treasury market. And an even bigger part of the treasury futures market. Are all investors and Market Participants and banks and ccps, are they managing this risk add a adequately. So it may be adding liquidity. Theyre probably all unique firms just like banks are. But when markets are transactioning at milliseconds within its important that we look at the questions around that. So i think that is one of the key take aways from the study. Recently, Federal Reserve governor Jerome Powell said theres no doubt that liquidity has been reduced in certainly markets, but he also indicated he was not too worried that a decreased market liquidity would cause big problems when the fed starts lifting Interest Rates saying im not particularly concerned that a return to higher volatility will leave much of a market on the u. S. Economy. Whats your response to that . A return to higher rate . I dont know if thats going to happen anytime soon. Weve heard them talking about it for a while. But if there is an exit by, you know, the music fund group, the insurance group, the foreign investors, the three investor groups that have issued the majority of the corporate debt that has been issued over the last decade, if they all decide to exit at one time, which we all flow were going to see a dramatic drop in prices. Id rather go back and talk about a minute about electronic trading, if i might. Talking about their global issues and how theyve seen the size of the orders for global issues go down. I saw a presentation by will rose of the rhodes group about a year and a half, two years ago, and it was specific to specific trading. He likened it back to how we saw the number of transactions and equities go up and the size of the transaction go down. And he put a graph up of what was going on with global issues in the fixed income world. And we saw the same thing happening. The volume of transactions was going up dramatically and the size of the transactions was goc down. And when you talk about electronic trading in the treasury market, you know i suppose the High Frequency traders can take place. We dont trade in the treasury market. When you get off into the corporate world, theres a number of global issues that could be traded in that fashion but the majority of the those in the fixed income world are so limited in scope to their size that you cant have a high volume of transactions. If youre on a particular platform and theres a million bonds being offered at a particular price and you lift a million bonds, thats what you get. You cant go out and do 100 million worth of that bond because theres only a million bonds there. So i think the adoption of electronic trading over the last number of years has been tremendous. I think it lends itself well to the treasury market and global issues. But when you start to get off the majority of the fixed income market, it works but the fear of high frequently trading on that type of security which is the majority of the market just doesnt exist. Just to add, weve been spending a lot of time talking about liquidity as we perceive it today. More importantly, we need to look at what our expectations are for market depth and the demand for liquidity in the future. And i think we look towards the horizon its probably important to know and not pick on regulations and i agree completely there are lots of other factors. In our control is about 40 of the rule writing is still yet to happen. It will further decrease the level of market liquidity. And i would ask that is it the opportunity right now to take a pause from the base that we are at higher capital, higher liquidity, reinforcing testing, Higher Standards broadly to determine dmrts condition text of what i mentioned earlier. The balance of safety and soundless in the balancing of functioning markets. Our goal collectively should be the resiliency of the u. S. Financial economy and its comprised of those two items. So i think here might be the opportunities, again, not about rolling back what has occurred not about being concerned because i agree with governor powell to the extent that we have a marketplace and i believe markets are resilient. They will eevolve, theres no doubt. But we see further market decline and we are at the precipice of the potential for changing Monetary Policy and the unwind of quantitative easing which will very likely present an skresed demand for that same liquidity. That is really great. That kind of queues up the last segment of our time together. The last segment was designed as we talked to the panelist, about the road forward for ensuring that we do have market liquidity. And if there are if we say some space is shrinking, then where is the space that we can increase and embracing technology and embracing some of these ideas because one of the things particularly from my perspective is the last thing you want to do is let congress stick its foot in. Who needs to fix liquidity is the marketplace and we need a robust marketplace and we need a marketplace that has some space to be innovative. And if we tend to try to fix the activities of the marketplace, so what are some of the ideas that people have out there in let me go to you. Sure. When we look at the market and think about ways to improve the liquidity situation from the status quo i touched on some of them. One of our set of ideas falls under the broad category of modernizing the Market Structure. What we mean by that more specifically is in fixed income the evolution in certain products were appropriate. The more fixed income products, the treasuries and large investment Corporate Bond we believe those could very suitably be traded on platforms and exchanges over time rather than the overthecounter contegs. What that means is the finite Balance Sheet capacity that there is would then be freed up for less liquid products that are never going to be suitable for exchange trading. Secondly we believe that a construct called open trading or ultra all trading where rather than looking for bilateral connections between firms and broker dealers, you have a broader pool where those connections can be made and essentially increase the network. Well uncover some latent liquidity, some latent buying and selling demand. In addition, we think those previous two steps are logistically and practically only scalable in an electronic trading context. So already weve seen in the u. S. Credit markets over the past decade go from zero percent to about 15 to 20 market share right now. And we do think there is ram for significant growth. To state, electronic trading has been an efficiency and productivity tool. It hasnt change the infrastructure of the market. We do think that electronic trading and the adoption of new hybrid trading protocols can actually help to uncover liquidity thats not currently being tapped. And all of these have in common that collectively they would reduce the capital intensity of the Market Making business. One of the constraints to new strands in the market is that its a capital intensive business to buy and hold Balance Sheets waiting for the other side of the trade. By making it more information intensive rather than capital intensive, we do think that will allow new providers to emerge and just make it a more heterogeneous market. As a large user of liquidity and a Large Customer of broker dealers, its in our interest, obviously, to have a Broader Network of providers. So we think that helps posture that growth. Does that shift the risk then to the broker dealer . One of the comments made earlier is that in a way, one of the impacts of regulation has been to shift investment risk from the Leverage Bank ss whether thats an intended or unintended consequence, i think that could bear some of the more transaction risks. Moving from a principal to an Agency Market would de facto occur in changes over time. Exchanges collect, buy, orders and sellers and match them together. They will work and they already do work in treasuries and they work in many equities not all. But theyre not going to work in some of the bonds that these panelists have talked about where they really only trade by appointment. But that said, theres still room for electronic markets or electronic facility toes help the trading of those bonds. So in particular the development of an order displaced facility a facility that would allow people to say i have this bond, id like to say it and here is the price at which id like to sell this bond. We already sort of have systems like this, but the problem is people regularly trade through those prices. By trade through, i mean if the market is offered in one of these systems, said 101, people would be arranging a trade at 102. So the buyer would have preferred the 102 price. Thats not necessarily an evil thing. Its possible the broebler didnt even know about the 101 price. And finally, we have to make sure that people dont violate their Agency Obligations to their clients and trade through when they do know about these prices. So just to give you an interesting statistic, inter active brokers gave me a lot of data. They collect the bit bids and offers. Some of them are firm, some of them are just indications of the prices at which people have indicated theyre willing to trade at all sorts of different venues. And they combine it into a single series. And i ask the question given the report of all trades that took place in the id during the time i had this data, how much do we see trade throughs . And the trade through rate was 21 . There was a buyer or a seller who could have done better presumably if they could have accessed the prices. If they could have accessed the prices, maybe they wouldnt have been there but still, this shows the incredible potential. Whats needed is an order displaced facility. It doesnt have to be mandated by the government, bit has to be something where private entities can create these things where the price res made public, not necessarily through a consolidated system. But if not reuters or others will consolidate the information just as incident either active does. But most importantly, a system where youre not allowed to trade through those prices because youre not doing your client a service by failing to pick up the easy to pick up trade. There is one additional complicate. If you say you cant trade through that price, you must make that price available so it can be taken. But if anybody can take a price, then it has to be the case that the trading system has to be an all to all system where if i grab it i can settle the trade. We do this all the time in equities. Why should it be so difficult to do it in another system. Theyre just securities. So lets settle them up that way. These are the order handling rules that i referred to before that made equity trading so incredibly effective. It wont be the same in bond markets because there are so many bonds. But to the extent that it makes the bond markets better, it will make the somebody else better off. And so the total value of those 48 that traded through oh, i had it here somebody else. The difference between the trade price ta they received and that they might have received times the not the full size of their trade, but only the displayed size that total value adds up to 600 million,ed 700 million per year and thats just on the limited daddy that i had available to me. So there is huge potential for change here. If we save that money for investors, how much more willing will they be to buy Ge Securities or investors. If you had had access to platforms like that, would that have been a benefit to ge . Well, i think the platforms are first of all, i think there is a role for electronics platforms, absolutely. I think i think the key to it is and dr. Harris touched on it. How do you make it so most buyers and sellers use the platform as the means of choice for buying or selling securities . And if that were the case, and to the extent it removes the inefficiency and truly security transactions are transed at the best levels then,. Ask for when theyre trying to build a buffer in as occurs nowadays. And i think the key question is how do you encourage people to make use of this so that the majority of transactions do occur on certain selected platforms because then people have access to that information. I mean, in some ways, were talking about Information Transparency because a logical buyer would not allow a price done at a worser level if they knew the better level potentially existed. But because they dont have that information, they just think theyre getting the best price and they do it. And i think thats a very big question. How do you ensure that it becomes the systems of choice or the platforms of choice and that there is this free flow of information that hits you know, 80 , 90 of the players in this market. Our regulators, how do we i think transparency is definitely key in our slots and futures market. We were mandated under dodd frank to have such a trading platform. And i think with that, the markets will be transparent and why wouldnt necessarily say well work for the income market given the number of bonds that are there. I do think some of the suggestions that were put out in terms of mandating the more liquid benchmarks for the securities. Saying its a good idea. And i think for the most part, if we continue to share data with the regulators, i think that will create an incentive for the market to come up and be more creative, as well. So moving from big to small, it occurs to me this whole conversation believe to me its occurred to me before, but we were and having talking about Systemic Risk. I think dr. Lang was talking about it in that context. Sandy was, too. And kind of interesting that of all the things dodd frank did, it created a Financial Stability Oversight Council to find and address pending Systemic Risks and here is one were having a big conference about and talking about and its been written about for years and not real obvious action being taken. I guess theyre busy designating insurance companies. So i think we should expect and demand more out of any Council Given the type of power that fsoc has been given to this issue. They have, of course access to the ofr, you know, a supposedly independent group with some really smart folks who are supposed to do this kind of research. They can research these issues and get the data. Larry can help them if they need it and they can report up to fsoc and it would be nice to know more of that is going on. Maybe it is. Im famously not a member and every now and again i read in the journal what happens. Or bloomberg or whatever. So i just think not enough is happening on these issues, the actually liquidity crisis itself and looking at the aggregate impact of regulation and its role of the liquidity. Both of those should and could be happening at ofr. Moving down the scale, then, within the fixed income markets that we oversee, because we have authority there, i view it as kind of two main issues. Market structure Bigger Picture and microstructure issues like dr. Harris was getting at. But theyre so intwined that you have to look at both at the same time. We still have, as i said earlier, markets that look like they did in 1950 guys named vinnie and joey are still trading tens of billions of dollars on the phone and its very opaque. Before, you would have no idea what the prices are and those price res post trade. And we, as an agency, we as i think a government need to decide, is that the right Market Structure . And if not, the worst possible thing, as weve all said, would be for congress to come in and do a title seven on that market and say all of a sudden, lets have Central Clearing and Staff Exchange like trading. It sounds great, its an equity market like or a future market like construct. It was laid over with derivatives, a formerly otc market and it hasnt gone all that great. Well see how it turns out 10 to 20 years from now. So i think thats a huge issue and one we need to wrestle with. But at the same time, we recognize the retail participation in these markets. Its 75 rev tail given the tax advantage that makes sense. In corporate, its getting close to 50 . And half of that 50 through aets managers is half direct. Its certainly close to dunl double digits if not 11. Thats a huge number and a huge notional and if we can bring, as commissioner bowen said, more transparencies, if investors un, a, what theyve just paid to do a trade, whether its a buy or sell, if they understand what the prevailing prices are before they do the trade as opposed to after, and if they get the pricing and information that i think is being inflicted upon them today, they might go get those pitch forks and, sorry dan, go after their dealers and demand a change in Market Structure that provides more efficiency. And i think dr. Harriss idea which if you didnt see it he ran in the wall street journal a couple of moss ago is hugely important. One that i admittedly hadnt thought about. But im not a ph. D. Economist. This notion of handling is an apt one. You can get major market changes coming from the grassroots. If you provide this more transparency at the retail level, you might get more liquidity and other changes and i hope and expect that we can do that. So i think the commission is actually you know as joking as ive been i think on this front of retail transparency pushing the sros to do more. I still think its not enough. I think the commission should change its own rules on confirmations to show customers how much theyve paid on a trade. I think that would change a lot. And then on the larger fixed income issues, thats why i think we need to commit our staffing resources, start thinking Bigger Picture and entertain at the ideas from the industry that hopefully dont require being rules but that can make big shifts. Weve done a lot of talking about it, but its time to really put it in motion. You brought of an interesting point about fsoc and their role of being the coordinating entity. And this is a very important subject. Is this dialogue going on within fsoc to your knowledge . My interesting isnt really great with respect to fsoc because they dont tell us much. And i read the annual report and in the annual report this is something theyre looking at. I think it was on about page 117 and it talk ss real quickly about the context. So i dont know. I hope more citizens of this country when they sit back and hope that we in washington are doing things that i know were not, i hope that theyre doing this as opposed to spending all their time figuring out whether to make institutions that should be able to fail too big to fail and designating them. I hope theyre going to commit to that. But i honestly, chairman dont know. This report thats a joint one is any indication in terms of how our agencies can Work Together then im pretty excited about what they will do for us. So there is something in the annual report. That is something that the principals of the council have discussed. And, again this report is an interagency effort which is the cftc and the fed and the treasury, it is not simple i think what the fsoc try toes build on is the expertise of each of the agencies. This report requires the expertise that the Federal Reserve system can bring to it and understanding treasury market transactions or the cftc can bring to it in the futures market. The data are immense. Transactions are being done in milliseconds. It doesnt take very much days before you get into billions and billions of transactions and identifying parts. I think its a pretty good example of some ways this council can be effective. And just one related point, not that you dont have enough to do, mr. Chairman, but in this context, im not going to disagree. I think the report is good quality staff work and you do know, of course, ta given the exceptions and the law, there is no Regulatory Authority in the treasury markets by either the fed, the cftc or the sec and quite honestly, i think thats Something Congress should look at. Our time is drawing near and we still have so many questions left. Is there anybody that wants to make a comment of something that you thought we would talk about but we didnt get a chance to talk about and dr. Harris . Sure. Very very briefly when the trace data first became publicly available, mike piebar now a commissioner of the exchange of the s. E. C. And i and another woman named amy add ward did a tudy of transaction costs and bonds. And that study showed something that very few people have appreciated. And its a shame that they dont. It shows that an issuer who has lots and lots of issues that are very complicate that those issues trade in less liquid markets than the issuers who have few issues outstanding and issues that are very simple. And so we should somehow try to figure out how to great the issuers, which they are municipal issuers or whether they are corporations to issue fewer bonds. They can reissue existing bonds. The states can form Municipal Bond banks. So the mosquito distinct doesnt know anything about it. If we could just beat down the number of names these markets would operate more effectively. Theyll be liquid again and its according to the demand. One other very quick comment, mr. Leland said something that really bothered me. Which is that he there is a story that you had about holding a bond that you would be forced to divest of because the period in which you had to hold it would be too long. Right. So that is really a concern. Unless there is a really good reason for a regulation like that, hes at a disadvantage to his competitors. And i really hate to say unbalanced playing fields. We really need to sur vale va all our regulations and make sure theres good reasons for it. Where reasons like that arent present or theyre reasons that date from times pastirm shouldnt be able to adapt to a changing world and that he ends up losing his business to people who, you know, hedge funds or otherwise that arent similarly regulated not because they arent regulated, but simply theres no reason for it. Well, there has been a great discussion. This is a discussion i think its not just a onetime event, but its something that should be ongoing. Im hopeful that more of this kind of dialogue will go on. I want to ask our audience to show the appreciation for the thoughtful presentation. And i personally appreciate all of you participating in this. I know that these are very busy people and ive found this to be very simulating. With that, we are adjourned. When congress is in session cspan brings you more of best access to congress, with live coverage of hearings, news conferences, and key public of those events. Every weekend, it is American History tv traveling to Historic Sites discussions with authors and historians, an eyewitness accounts of events that define the nation. Cspan three. Coverage of congress and American History tv. Each week, American History tvs reel america brings you archival films that help tell the story of the 20th century. One year after president Lyndon Johnson signed the 1960 four civil rights act, the u. S. Information Agency Brought a group of civil rights leaders together to discuss the laws effectiveness. The moderator helped found it americans for democratic action and argued 16 cases before the Supreme Court and Lobby Congress for passage of the 1964 civil rights act. The white house, washington d. C. , usa. Today, july 2, 1964. The occasion signing into law the civil rights act